I believe it's possible to make a case that urban fantasy's roots rest in the Pulp Era, when Street & Smith knocked out dime novels left and right as if such a font of productivity would continue forever, never running dry. There was a demand -- a Depression-fueled desire for escape, for fantasy -- and so there was a supply -- heroes such as The Shadow and Doc Savage, Conan and Tarzan. It was a time that marked the birth of F&SF and Weird Tales, a time when John W. Campbell and his contemporaries started a Golden Age of Science Fiction, a time for young men such as Asimov and Heinlein to make their mark.
So many threads, so many possibilities, all developing at the same time. Horror, fantasy, science fiction, adventure ... literature.
Currently, we're seeing an increase in urban fantasy. Primarily in the subset of paranormal romance, though the amount of "romance" can vary from book to book and author to author, defying labels. Urban Shaman is a good case in point, skewing to the tame side of romance to tell the story of police mechanic Joanne Walker as she develops the powers of a shaman and deals with an incursion of the Wild Hunt in Seattle. The story is straightforward and immensely entertaining, easily comparable to the work of Jim Butcher, if you need an Urban Fantasy benchmark. There's a lot of groundwork done, explaining Walker's powers, building the setting, introducing characters. But there's room for growth: her relationship with cab driver/sidekick Gary; her work in the Seattle PD; her adversarial relationship with her boss Morrison; her interactions with her spirit guide, Coyote. There aren't any "bad guys," per se, in the cast of characters. No one as antagonistic as the warden Morgan from Butcher's Dresden books.
That isn't necessarily a bad thing. The three books in the Walker Papers -- Urban Shaman, Thunderbird Falls and Coyote Dreams -- are published by Luna, Harlequin's paranormal romance imprint. It's probably ludicrous for me to believe it's a "requirement" of romance novels that main characters, such as Morrison, can't be a "bad guy" in the traditional sense. Even Butcher makes villains like crime lord Marcone or vampire Mavra three-dimensional characters. Readers can either love them or hate them, depending on their preference. And Murphy does the same with Urban Shaman with Morrison or with "Thor," the blond-haired mechanic hired to replace Walker prior to the story's beginning. Urban Shaman works; the publisher doesn't matter. It's a good read and could just as easily have come from Roc as a complement for its Dresden Files or from Ace as one to Laurell K. Hamilton's Anita Blake books. Luna just happens to be the home for this series.
And that's why I believe the recent resurgence in urban fantasy (through the guise of paranormal romance) signals a renaissance in genre fiction.
UF/PR is hot. Anita Blake was the most recent character to step through the revolving door, and Harry Dresden followed on her heels, quickly breaking into hard cover and multi-media ventures with audio versions of the series and a television show on the SciFi Channel. I could list a half-dozen books and authors that fill this niche to one degree or another. And while Anita Blake and Harry Dresden are the recent champions, they should pay homage to Charles de Lint and Glen Cook.
But UF/PR isn't the be-all and end-all nowadays, is it? You've writers like Charles Stross/autopope dabbling in wildly different subsets with works ranging from his Singularity-themed Accelerando stories to the H.P. Lovecraft-John LeCarre/Len Deighton amalgam found within his two Laundry books. You've got Harry Potter, a juggernaut that's energized and mainstreamed children's fiction. You've got dragons and Napoleonic historical fiction with Hugo nominee Naomi Novik's Temeraire books. You've new publishers such as Pyr joining established ones -- Tor and Baen (to name two at random). You've Baen experimenting with the magazine side of things with Jim Baen's Universe. The loss of Kurt Vonnegut is a loss felt by genre fiction, where his best works were best appreciated.
When Stephen King, who also dabbles in various genre "subsets," received the National Book Foundation's Medal for Distinguished Contribution to American Letters in 2003, it wasn't a deathknell for literature. It was a celebration of our future. When Michael Chabon won the Pulitzer Prize for The Amazing Adverntures of Kavalier & Clay or Cormac McCarthy won just this past year for The Road, literature wasn't taking a step back. It was moving forward.
So, welcome to the new Pulp Era. Try to pin down genre fiction to one definition and you'll fail. It is all things. Which is great for the writer and great for the reader.